Barnes & Noble, Burkle fight nears end

As proxy fights go, the one between bookseller Barnes & Noble and billionaire investor Ron Burkle has been a page turner, and it could come with a cliff-hanger ending Tuesday.

At stake are the future of Barnes & Noble's brick-and-mortar stores and how it plans to grab more of the electronic book market. The company put itself up for sale in a surprise move in August and has increasingly focused on e-books as a path to growth.

The contest is too close to call at this point, Morningstar analyst Peter Wahlstrom said.

"It could really come down to an 'every vote counts' situation," he said.

The proxy fight stems from Burkle and his Yucaipa Cos.' complaint that Barnes & Noble Chairman Leonard Riggio, who owns a 29 percent stake in the company, is not running the largest U.S. book seller in the best interests of shareholders.

Burkle, who owns about 19 percent of Barnes & Noble's shares through his Yucaipa Cos., sued Barnes & Noble earlier this year over its "poison pill" shareholder rights plan that limits individual stakes to 20 percent. That lawsuit was dismissed, but Burkle is appealing.

Burkle then nominated three people, including himself, for the three director seats up for election or re-election to Barnes & Noble's nine-person board at the company's annual meeting Tuesday. Barnes & Noble has its own slate of candidates, including Riggio.

After the lawsuit was dismissed in August, the proxy fight escalated, with letters written to shareholders by each side railing against the other.

Barnes & Noble contends that Burkle wants to take control of the company without paying a fair price by teaming with Aletheia Research and Management Inc., a Los Angeles private equity firm that has a 15 percent stake in Barnes & Noble.

Yucaipa has dismissed this charge and, in turn, accused Riggio of saddling the company with debt and not putting shareholder interests ahead of the own, all of which Barnes & Noble disputes.

Four proxy advisory firms have weighed in on the battle. The largest, Institutional Shareholder Services, recommended shareholders vote for Burkle's slate "to forestall any attempts at creeping control, including attempts by corporate insiders."

Wahlstrom said if Burkle's candidates win, major changes may be in store for the bookseller, but it might take a while.

Burkle's slate would likely start to evaluate brick-and-mortar stores and closing underperforming ones more aggressively in 2011, he said.

The company's $1 annual dividend also could be reconsidered, he said.

"$1 per share per year is 55 million bucks," he said. "That's a fair chunk of cash that could be used toward investments in key growing areas, such as e-books."

In addition to Riggio, the Barnes & Noble slate includes David Golden II, 52, a partner at private investment company Revolution LLC and a former longtime JPMorgan executive, as well as David Wilson, 69, CEO of the nonprofit that administers the Graduate Management Admission Test.

The proxy fight comes as Barnes & Noble tries to reinvent itself to capture more of the small but growing e-book market. It introduced its Nook e-reader last year, expanded its selection of electronic books and elevated William Lynch, the president of its Web site, to lead the company in March.

It also made the surprise announcement in August it was considering its options, including putting itself up for sale.